2 stocks I’d buy for my ISA after recent falls

Royal Dutch Shell Plc (LON: RDSA) and Mondi Plc (LON: MNDI) shares look really good value, writes Thomas Carr.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In the last few weeks, markets have crashed, with investors rattled over fears of trade wars and recessions. In the first two weeks of August, the FTSE 100 fell almost 7%. But rather than panic, investors should see these falls as unique opportunities to buy high-quality companies at low prices.

One quality company I’m tempted to buy is Mondi (LSE: MNDI). Mondi is a global packaging and paper company, and a big one at that, with sales of €7.4 billion last year. The company has a track record of consistently growing revenues and profits, with after-tax profits up from €497 million in 2014, to €866 million in 2018.

After recently increasing the interim dividend, the shares now offer a very attractive 5% yield for the full year. The share price is the lowest it has been in three years, having fallen 16% since the end of July. At the time of writing, the price-to-earnings (P/E) ratio is just 9, which in my opinion is far too low for a company of this quality.

Mondi has a promising future too, as demonstrated by a strong showing in the first half of 2019. Profit before tax was 29% higher than at the same stage last year, whilst its return on capital employed is industry-leading at 23%.

The company is focused on developing new, sustainable packaging solutions, such as flexible and hybrid plastics, that are environmentally friendly. Mondi is uniquely positioned – at the forefront of its industry – to benefit from a consumer that is increasingly concerned about plastic use and recyclability.

Another victim of the recent sell off is Royal Dutch Shell (LSE: RDSB), with the shares down 12% since the end of July.

Full year revenues grew by 30% in 2017, and by 27% last year. Impressive cost cutting has seen after-tax profits increase from just $2 billion in 2015, to $23.9 billion last year. The breakeven oil price for new projects is now just $30/ bl, meaning that Shell now makes more money with the oil price at $60/ bl, than it did five years ago, at $90/ bl.

I think that a dividend yield of 7% (at the time of writing) is probably enough of a reason to buy this stock. But that’s only half of the story. Shell also has a huge share buyback programme, where it’s committed to purchasing up to $25 billion of its own shares, between 2018 and 2020. By the time this is factored in, the real yield of the shares is nearer to 10%.

Management have even signalled an intention to return a further $125 billion to shareholders between 2021 and 2025, which would send the yield into nosebleed territory. All this is available at a P/E of less than 10.

Shell aims to pay for this through its continued focus on cash generation, and by divesting non-core assets. The company is positioning itself as a provider of low carbon energy, through both its new fuels offerings, and its emerging power solutions. Shell is not giving up on conventional oil and gas by any means, but it is trying to diversify into new growth areas, such as EV charging, battery storage, and renewables generation.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Thomas Carr does not hold shares in any of the shares mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Is BT Group one of the FTSE 100’s greatest value shares?

BT's share price looks like a bargain when you look at the P/E ratio and dividend yield. Is it one…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

The National Grid share price just plunged another 10%. Time to buy?

The National Grid share price is one of the FTSE 100's most stable, and nothing much happens to it? Well,…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

Up 15% in 3 months, but I still won’t touch Vodafone shares with a bargepole

Harvey Jones has been shunning Vodafone shares for years. The FTSE 100 stock is finally showing signs of life, but…

Read more »

Growth Shares

This UK stock could be like buying Nvidia in 2021

Jon Smith thinks he's missed the boat with Nvidia shares, but flags up a UK stock that has some very…

Read more »

Businesswoman calculating finances in an office
Investing Articles

The FTSE 100’s Intertek delivers a bullish update — can the share price soar?

I’d describe Intertek as a quality business with a decent dividend income, but will the share price shoot the lights…

Read more »

Market Movers

Up another 10% yesterday, how high can the Nvidia share price go?

Jon Smith talks through the latest results but flags up why further gains could be harder to come by for…

Read more »

Investing For Beginners

Down 43% in a year, I think this value stock is primed for a comeback

Jon Smith flags up why a FTSE 250 share has fallen so much in the recent past, but explains why…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Nvidia stock is stupidly expensive. Or is it?

Nvidia stock's up over 2,000% in the past five years. Christopher Ruane explains why it could be wildly overvalued --…

Read more »